Black Economic Empowerment Blog

PPPFA

March 04, 2019

This is a post that I have been wanting to write for a long time. I eventually wrote it as an article for Moneyweb, who published it on Friday and syndicated it to the Citizen (now I'm really famous). I have been mulling this over for a long time. Why is it that these BEE codes are more focused on driving a change of ownership than the broad-based emphasis they purport to advocate? It's patently obvious that everything broad-based is a falsehood. I found the answer in bolshie bob's Youth Employment Service practice note, specifically paragraph 1.13

1.13 EMEs and at least 51% Black Owned or more QSEs that participate within the Y.E.S Initiative will be verified against the Qualifying Small Enterprise Scorecard and the B-BBEE Certificate will be issued by an Accredited SANAS B-BBEE Verification Agency. This is also applicable to Sector Codes of Good Practice utilising the respective QSE Scorecard.

Here is the article. It was cleaned up a bit by a MoneyWeb editor. You'll notice that I haven't referred to bolshie bob or the awesome awdoz. Their real names are Rob Davies and Zodwa Ntuli (uppercase is an exception on this blog)

There is a very interesting clause in the practice note for the Youth Employment Service (YES) document that appears to defy any form of logic.

The YES programme is now linked to the black economic empowerment (BEE) scorecard and promises to promote companies up to two levels if they employ unemployed black youth for a period of 12 months.

The clause states that exempted micro enterprises (EMEs) or 51% black-owned qualifying small enterprises (QSEs) that wish to claim this benefit need to get measured on the full scorecard before they can benefit from the YES promotion.

For the uninitiated, an EME turns over less than R10 million per year and a QSE between R10 million and R50 million. EMEs with less than 51% black ownership are level 4 BEE contributors, 51%+ black-owned EMEs are automatically level 2, and 100% black-owned businesses are level 1 – which is the top of the BEE pile. The same levels apply to 51% black-owned and 100% black-owned QSEs. All other QSEs need to go through the rigorous, onerous and expensive process of implementing a BEE scorecard and taking the level that this process delivers.

It must be stressed that the process is costly, complicated and unlikely to deliver great results if your company has little (10% or less) or no black ownership. In my experience, a level 8 (which is the entry level to the scorecard) is pretty much what most companies would have to settle for without black ownership.

Why?

This begs the question – why would an exempt micro enterprise that is automatically a level 4 go through a verification to get to a level 7 or 8 and then embark on the YES programme to be promoted to a level 5 when they are already a level 4?

Similarly, why would a 51% black-owned QSE want to get verified in the hope that they come up with a level 3 and then go through the YES process to get to a level 1, when they are automatically a level 2?

And why would a 100% black-owned company even bother with YES?

Herein lies the conundrum. Minister of trade and industry Rob Davies has been forced to exclude smaller businesses from his YES programme even though they are the most likely employers of black youth under the YES programme.

The only logical reason he has done this is because a level 4 can get to a level 2 within a year just by employing a number of people that the business might actually need. But then this would pose a threat to black-owned level 2 and 1 businesses when it comes to state procurement.

There is a five and six preference point advantage, depending on the value of the tender, between a level 4 and a level 2 under the 2017 Preferential Procurement Policy Frameworks Act (PPPFA) regulations. This perceived threat to smaller black-owned businesses has to be mitigated against by discouraging lesser owned competitors from reaching their own BEE levels through any programme that promises a promotion of a couple of levels.

The minister himself has tacitly confirmed the onerous nature of the revised BEE scorecard by publishing a proposition that all 51%+ black-owned companies should all be promoted to level 2 irrespective of their turnover. I have a 100% black-owned client that is over the R50 million turnover threshold that could not get better than a level 5 when we took them through the whole BEE scorecard. This company would have truly appreciated the instant promotion that would have come at a fraction of the cost and hassle.

Dubious motive

These developments have me questioning the motive behind the revised BEE codes.

The department of trade and industry (dti) crowed that these codes were more broad-based than ever, stating that they will touch more of the people who need this empowerment than its predecessor.

But if this is the case then surely all companies, irrespective of ownership levels, should be involved in the process? The more companies that hire black people, train them and buy from black-owned businesses and support the black poor, the greater the impact on the economy and society in general.

Yet 51% black-owned companies that turn over less than R50 million don’t have to contribute to any of this because they aren’t measured on it.

I think the reasons behind this are simple, and I must confess that I have been unduly influenced by Institute of Race Relations CEO Dr Frans Cronje’s arguments about the national democratic revolution.

Cronje argues that the National Democratic Revolution (NDR) led by the ANC strives to rid South Africa of all the vestiges of its colonial past. Part of this process would see 51% of the entire economy in black hands. The reward for those companies reaching 51% would be that they may never have to implement a BEE scorecard at all. Everyone would be a level two or higher. And the need to support black-owned businesses and charities would disappear because all businesses would be black-owned.

Punitive

To someone like Davies, a member of the South African Communist Party, this is the purest and cleanest form of transformation.

But it is a very lofty ideal that is unlikely to be achieved in a free market economy. Those companies that do not wish to adhere to this ownership target will be forced to implement the complex BEE scorecard.

This is simply a punitive alternative. Its punitiveness is enhanced when you consider that the targets for elements like skills development, procurement and enterprise/supplier development are not only complex but extremely costly. It attempts to force smaller businesses to get to the 51% black ownership level in the quickest possible way. This pressure has resulted in many smaller white-owned businesses moving to 51% ownership through elaborate empowerment schemes that irritate BEE Commissioner Zodwa Ntuli because she is powerless to curtail them.

Once this concept is understood it becomes quite clear that the codes are less concerned about broad-based transformation and more concerned about giving black-owned businesses a massive competitive advantage over their lesser owned competitors, specifically in procurement that is subject to the PPPFA. To ensure that this advantage is maintained Davies has set up a series of codes that render it almost impossible to meet those levels when a company has to implement the BEE scorecard.

The exception that should be the rule

What is interesting though is that there is one sector code that is never expected to achieve 51% black ownership – the Financial Sector BEE Code (FSC).

This is because of listed shareholding and the requirement of the Banks Act that any shareholder with more than a 15% stake in a bank must meet certain liquidity requirements in the event that the bank requires the shareholder to bail it out.

The FSC is the only BEE code that focuses on the transformation of the entire sector by encouraging those companies to embark a wide range of initiatives that reach the largest amount of people.

I would argue that it is truly a broad-based code.

As for the other codes – they are a smokescreen and if they actually achieve any form of transformation in the future it will be an unintended consequence.

The transformation of South Africa will not come about as a result of those codes. Corporate South Africa needs to prepare to shoulder the blame from this fallout as it has for the government’s failures in the last two decades.

September 11, 2018

Swissport's most recent BEE certificate (which expired in May) shows that they are a level 4 with 49% black ownership. As I wrote yesterday, the ACSA tender stipulates that bidders commit to 51% black ownership at the first anniversary of the licence agreement, which must be maintained for the duration of the licence.

These are but some of the issues that many companies face when it comes to state procurement. I have noticed that a number of tenders have come out saying that if you aren't a certain level then don't bother. Take a look here. The bid document states

* Bids received from bidders who have a Level 4 to 8 B-BBEE contributor status and non-compliant contributor, will not be considered for evaluation and will be eliminated from further evaluation.

I don't know whether this is legal - I've lost touch with the PPPFA. But it begs the question - what is the point? What's the point of going through the pain of "transformation" when all they want is Transformayshin.

I think it's about time that the likes of BUSA and BLSA start asking questions about Transformayshin vs transformation. Does the government want jobs. If so then where does Transformayshin fit into this process - from my desk it is patently apparent that it doesn't fit it.

Failing that you get a rebellion. A client of mine sent me this article. Its three years old but she tells me that it carries an incredible amount of weight in the farming community. The author concludes with

Politicians will keep on promoting their hare-brained schemes, and organised agriculture will keep on negotiating. But until such time as a reasonably detailed road map for future land reform and BEE is finalised, the prudent strategy for individual farmers is to ignore BEE and spend time and money on improving conditions for their own workers.

This was before malema started with his expropriation rubbish. All the client wanted was affidavits from honey suppliers and they were refusing because of this article. This is the kind of rebellion that carries an immense amount of weight. Can you imagine if the petroleum sector said - no, we're not doing it. The government would withdraw their licences and the economy would grind to a halt.

Unlikely to happen - but the more Cyril dithers the greater the possibility.

September 28, 2016

Speaking to the Black Business Council, which has signaled strong support for Zuma, South Africa’s president said that the Preferential Procurement Policy Framework Act will be changed “to continue the quest for a transformed economy”. More people must be brought into the net to benefit from government contracts, he said.

We've heard this before. Remember how seriously Dud took the doos's obiter remark about set-asides in his 2015 state of the nation (of no fixed) address? I think this is another platitude from the mouth of a moron who no-one likes nor respects (other than Hlaudi of course). As Jackie Cameron wrote

The president’s words will be music to the ears of the tenderpreneur brigade, though not so sweet to the small army of entrepreneurs who aren’t black but play a meaningful role in job creation and economic growth and are already doing their bit for BEE. An amended public procurement bill is set to be released for discussion next month and tabled in Parliament early next year.

I can't see this happening. Zuma lacks the political clout to do it. Perhaps he is prodding Treasury to see what their reaction will be. Perhaps he thinks that the useless and tailcoat-riding BBC will start lobbying to get rid of Pravin because he's not going to agree to this. Thinking about it, this is probably what Zuma is doing. The strategy now is to create huge dissatisfaction with Pravin, specifically amongst those who are not competent enough to provide services to the private sector and have settled for government work that worries neither about quality nor price.

Now he's attempting to placate the completely irrelevant jungle jim, who is threatening to go to court (yeah right) to get the PPPFA scrapped. He's saying the regulations that Treasury published earlier this year are going to be promulgated at the end of this year as an interim measure, and then they are going to change the Act (not repeal it jungle). Here are the words of the thickest human being next to Hlaudi.

In the past five years as part of advancing BBBEE procurement, government amended the Preferential Procurement Policy Framework Act or the PPPFA Regulations to provide for BEE preference points. We thought this would work and would make an impact. However, you pointed out that it does not work. We are now aware of the shortcomings. We agree that the preference points system prescribed in the PPPFA is rigid and is not responsive to government objectives.

Due to the shortcomings, the preferential procurement regulations have failed to substantially re-shape the skewed ownership and control of the South African economy. It is the intention of government to ultimately repeal the PPPFA and its associated regulations and introduce a more flexible preferential procurement framework that is responsive to government objectives.

In this regard, the Preferential Procurement Policy Framework Act will be repealed by the Public Procurement Act. The Public Procurement Bill is now going through the different government stakeholder engagement processes before it is tabled in Parliament. This is targeted for early 2017. I trust that the BBC has made its inputs to the National Treasury.

In the interim, government is to produce regulations that will improve the PPPFA to make them more responsive to the economic transformation imperatives.

One of the main changes contained in the proposed new Preferential Procurement Regulations is the introduction of a compulsory sub-contracting clause.

It will be compulsory to sub-contract a minimum of 30% of the value of the contract for all contracts above 30 million rand, to small and emerging enterprises owned by the women, youth, black people or persons with disability. The intention is to finalise the Preferential Procurement Regulations for approval during October 2016, and for these to be promulgated by 1 November 2016.

September 12, 2016

There is quite nothing more pathetic than a Zuma/ANC patsy who thinks that he is still relevant, even though he has never been. Enter our old friend (this blog's friend), Verwoerd's protege - jungle jim (who goes by the new moniker Mzwanele). I get the impression that Zuma is now so desperate for support that he has put jungle on the case. I'm not for a second suggesting that jungle is less competent than Zwane but it's really close.

Black First Land First leader Andile Mngxitama and president of the Progressive Professionals Forum, Mzwandile (Jimmy) Manyi say they are shocked over the lack of transformation at SAA.

Manyi says he and Mngxitama decided to engage directly with SAA Chairperson Dudu Myeni over controversial claims made about operations at the airline.

We have decide that we have to be a very active civil society.

— Mzwandile Manyi, president of the Progressive Professionals Forum

He says that while Myeni was very cooperative, they were dissapointed to find that only 2% of SAA's R24 billion procurement budget goes to black business.

Among other representation issues, they have taken gripe with the fact the the airline's ICT services are outsourced to a French firm.

Manyi refused to respond to what he's called "petty comments" regarding his relationship with the ANC and President Jacob Zuma.

In addition, he remains adamant that the National Treasury has been captured by white capital and big business.

National Treasury is working against the development and empowerment of black people.

— Mzwandile Manyi, president of the Progressive Professionals Forum

Stephen Grootes, for his sins and there must be many if this who you get to interview the wild man. We all know that jungle has one agenda and that is to moan about "white monopoly capital", that brand new buzzword. To a certain extent jungle is like Panyaza Lesufi who only ever opens his mouth when racism is alleged. This interview (it's on this page) makes for entertaining listening. Grootes seems to have lost patience with people like jungle. Perhaps his bullshit barometer is just exhausted. After questioning jungle about his friendship with both Zuma and Miyeni millions they then head off into PPPFA territory. The listener should start at 7:13. The PPPFA is killing black business says Tarzan's rival. He goes into section 217. And then alleges that the constitution allows the government to pay exorbitant prices for stuff. He goes into the most unbelievable (literally unbelievable) and nonsensical rant about the PPPFA's constitutionality. Even at first listen you know he's talking rubbish. But that's not the crux. The crux, dear reader, is his parting shot.

"...so we are saying that the PPPFA in its current formulation is actually unconstitutional. We've been making this point time and time again. It's time we go to court on this matter."

Well it's not often that I agree with my good friend. But I would welcome this court case. But it won't happen. Manyi, the Black Business Council and other types of lobby groups have no interest in going to court. They would rather lobby the corruptible powers that be.

July 06, 2016

It was my father who told me that if you aren't going to say anything nice about anyone or anything then don't bother – but then he had no idea that the ANC government (which he never had any issue with) were going to be so useless. And my god how useless they have turned out to be. If you are in the only competent department in this bloated government (public sector) and you have been told by lobby groups like the BBC, BMF, Black Lepers' Association etc that you WILL make a plan to change the PPPFA to suit them, eventually you will capitulate. And this is exactly what Treasury has done with their new draft PPPFA regulations.

We need to travel back in time here. The black business council has long been pushing for dramatic changes to the PPPFA – the current (not draft) regulations really throw a spanner in the works for state capture (legitimate state capture – not the illegitimate stuff which makes up the majority of state procurement). Our brazenly Hlaudi-like jungle jim had even gone so far as to demand (always demands for jungle because he lacks the credibility everywhere for anyone to constructively engage with him) that the PPPFA be scrapped. Perhaps the BBC was emboldened by Zuma's statement in the fated 2015 state of the nation farce where set asides would be created for black businesses, perhaps they were inspired by Dud Miyeni-millions-to-be-had's set asides at the national disaster of the skies. Perhaps they forgot to pay attention to the fact that Treasury told Dud to stop behaving in this arbitrary way. Maybe they saw that if you put pressure on Treasury and ran to Daddy (23 odd children that we know about) you'd get the finance minister fired. Or maybe the Treasury just wanted to get this irritating mosquito out of their offices. Whatever the rationale – Treasury has published a half decent document (no sign of Bolshie Bob's work to be seen in it, which automatically makes it better).

A few observations

It's open to interpretation and changes. They've used general descriptions in many cases, things like referring to any EME/QSE as defined in a code of good practice issued under section 9(1) of the Act

The old HDSA definition in the first regulations is back – they don't refer to people who couldn't vote before 1994 but have included all women and disabled people in the designated group category

Functionality is now part of the evaluation criteria. In the past the PPPFA kicked in only once the functionality test had been conducted.

The terms "rural areas" and "township" are also included within the definitions

The 80/20 principle is now extended to contracts less than R100million (this is just for the BBC – they are going to make a clean sweep here)

Set-asides are included but not expressly – they are suggested. For example, paragraph 10 (1) says that pre-qualifying criteria MAY include things like (inter alia) a stipulated minimum BEE level.

If the contract is more than R30million then 30% MUST be subcontracted to a prescribed class of subcontractor.

Now what I really think

R100million as an 80/20 threshold.

I don't know – this is up 100% from the current regulations, which have set the threshold at R1million. This is a large amount of money. This figure is there to appease the lobby groups who will take firm advantage of this (I would too). What Pravin is telling us is that he is willing to pay up to R25million more on a contract.

BUT – Treasury is not as dumb as the ANC. There are implications here

Paragraph 6.4 of Statement 000 in the Revised Codes (36928 – if my brackets irritate you, you aren't alone) says that start-up enterprises must produce a QSE scorecard for contracts between R10m and R50m and a generic one for larger amounts for any contract contemplated under section 10 of the BEE Act. This effectively messes with compliance simplicity for contracts over R50m for start-ups.

Any contract over R30m must sub-contract. This might not be stipulated in the tender document, but the tender has to make it clear who they are subcontracting to (white owned EMEs and QSEs may also be subcontracted).

There is a functionality requirement which COULD provide a filtering mechanism for start-up chancers.

And the issues

Contracts less than R50m are open to abuse from start-up black-owned companies. No this is not racist – it's just that black-owned companies of between 51% and 100% ownership don't need to comply with elements, they just need an affidavit. State capture in R50million chunks – the Guptas must be laughing in the Dubai heat. Don't laugh too much my little pilferers – you could lose hydration in that heat and you won't be able to stand trial here with Zoomer.

The functionality criteria are not obligatory. A corrupt supply chain manager may just exclude this because they have already identified the winners in the tender

The inclusion of examples in the document

Paragraph 10 of the draft regulations list a few types of examples that will inevitably become the norm. The paragraph below is edited.

10(1) If an organ of state intends to apply pre-qualifying criteria in the evaluation of a tender, the criteria stated in the tender documents may include, but are not limited to

The tenderer having a stipulated minimum B-BBEE status level of contributor

The tenderer to sub-contract at a minimum of 30% of the value of the contract to one or more

EMEs or QSEs owned by black women

Black youth-owned EMEs or QSEs

Black owned EMEs or QSES

Etc

I would be surprised if the criteria that may be used are ever extended beyond these examples. This could render the definitions I discussed above as superfluous.

Set-asides

One morning an incompetent minister was on the radio telling us how her equally incompetent department were going to use set-asides. I found myself agreeing with her. If the state procurement machine (as per the BBC's allegation) is still not benefiting black business then fuck it, just use set-asides. It's probably time to do it. Treasury has not traditionally been in favour of set-asides, for good reason – they are patently unconstitutional. Section 217 of the constitution requires a procurement that is fair, competitive, cost-effective, transparent and equitable. Set-asides preclude a class of people (juristic and natural) from bidding for certain contracts. I think Treasury has been clever by not expressly stating that black-owned businesses may only bid but they are effectively precluding competitive bids from other suppliers by using the example above.

For example – let's say a bid for a contract less than R30m states that you have to be a level 2 or higher. The message here is that only black-owned QSEs with a shareholding of 51% or higher may bid. The supply chain manager will argue that any company can get to a level two by implementing the QSE scorecard at great expense and get to 95 points on the QSE scorecard. But then again, only those companies with 25% black ownership can do this. There are issues here – bill of rights issues, competitive issues, cost effectiveness issues. And most importantly litigation issues.

Points advantage to black-owned EMEs and QSEs

A perennial factor. A 100% black-owned EME will have an 8 point advantage over their white-owned competitors. Is this extreme advantage reasonable and fair? As a white speaking non-Jedi I would say no. Understand that for my QSE business to vaguely compete I have to conduct a wide variety of extraneous activities that my black competitors do not need to.

By the time you get to the 90/10 it all pretty much normalises. Alarm bells must be rung if a company that produces a QSE BEE certificate bids for a R100.1million contract.

AND IN CONCLUSION MY DEAR KLEINBOOI

This is a good document. As I was writing this blog post I realised that my misgivings had been partially addressed within the draft. However experience has shown us that the average supply chain manager is not clued up about the legal complexities of state procurement and so abuse can be expected. Functionality levels can be set in such a way that only one bidder could ever qualify and this is in spite of paragraph 4(2) that requires objectivity.

I'll be sending my comments to the required email address (I'll remove the profanities before I do).

July 30, 2015

In his 2015 state of the nation giggle session our very competent, intelligent and decisive president made the following announcement.

Government will set-aside 30% of appropriate categories of State procurement for purchasing from SMMEs, co-operatives as well as township and rural enterprises.

We are quite used to this esteemed personage's platitudes and incredible decisiveness so it might be quite strange to the average person when he does actually deliver on his promises. He has in fact in the new draft PPPFA regulations. A Bardot delivery had these same regulations sent to me, it would be wrong not to post them up here for your perusal.

Here are a few of some of the features:

80/20 works for R10m to R50m

90/10 for more than R50m. If you are seeing new QSE patterns emerging you would be on the money

50/50 points' system for less than R10m

The 80/20 and 90/10 systems work on standard BEE points' allocations. However the 50/50 system is a lot more interesting. This is what it looks like

Points will be allocated in accordance with the table below

No.

Criteria

Points

1

Price

50

2

Specific Goals:

2.1

Individuals who had no franchise in national elections before the 1983 and 1993 Constitutions

12

2.2

51% or more ownership by females

12

2.3

51% or more ownership by persons with a disability

12

2.4

SMME (Small, Medium and Micro-enterprise)

6

2.5

LED (Local Economic Development)

8

This harks back to the 2001 PPPFA regulations. No franchise before the two constitutions effectively includes all black people as defined. Africans had not vote before '83 and '93. Coloureds and Indians didn't have the vote before 1983. The reference to disabled and women includes ALL women and disabled people.

I do rather like the inclusion of SMME and Local Economic Development because the issue with the current regulations is that it didn't favour regional businesses. What Zille and Kane-Berman missed is this paragraph

(2) (a) For the specific goals under 2.2 to 2.5 in the table above, the Minister of Finance (Minister) may, from time to time, prescribe targets that must be procured from certain categories of person or commodity groups. Therefore, the number of points, as well as the groups referred to in the specific goals in sub-regulation (1)

What this says is that Nene may use set asides. Something that the Constitution would not be happy with (as if that has ever been a problem for our literate and competent legislators), and something that Treasury banned in 2006.

Now onto some of the more interesting features of 2.1 above (you will see on page 8 that this requirement may never be removed from any tender). You'll notice the word "INDIVIDUAL", this is a very specific word, it refers to individuals and not classes of people. As I mentioned African people did not have the vote until 1994. This means that only individuals who are over 21 years old and African can qualify. Indians and Coloureds get a rawer deal. They would need to be 31 years and older (as if they haven't been shafted enough under the revised codes). As this regulation gets on in the years so will the age of the black person increase.

This is pure BBC – a subtle attempt at favouring Africans over other black groups.

Another issue which plagues me is the value of the tender. What the 50/50 system does is give certain types of people up to a 100% price advantage. If they tick all the boxes under 2 above and get 1 more point for price they could 51 points which beats the bidder that only offered the best price (cost effectiveness is a vital ingredient of section 217). The rules are that they should win the bid. But this system is only for bids for less than R10m. If that bidder comes in a R10,000,000.01 then they are no longer part of the R10m scheme. In effect this system will only work for bids less than R5m.

The whole system is completely open for abuse. It is absolutely unconstitutional and unaffordable. Related articles

July 28, 2015

Has the Treasury been captured by the black business lobby? Has it bowed before the powerful wind of racial nationalism sweeping through the ruling party and its communist and trade union allies?

If so, will the Reserve Bank be the next domino to fall?

Until now, the Treasury, like the Reserve Bank, has been a bulwark against some of the more reckless tendencies in the government.

But new draft regulations allowing government tenders worth less than R10-million to be evaluated up to 50% on racial and other empowerment criteria and only 50% on price, suggest it is no longer able or willing to resist the racial agenda being pursued by President Jacob Zuma’s allegedly directionless government.

That the Treasury should be willing to incur these higher costs when it is supposed to be keeping government spending under control also suggests the commitment of the ANC to racial ideology is as relentless as that of the National Party (NP).

The term I have used in the past is Zungurisation. The term is possibly unfair but Mr Zungu has been pushing for this. I haven't seen these proposed changes. There is little doubt that this proposal will not work constitutionally but this has never stopped those who insist on pushing it through. Logic would suggest that an almost broke fisc would never go for this. But they will, they will push it through and then we are in a whole heap of trouble. Not that they care, and why on earth should we?

August 15, 2014

The news that the DTI planned to bring verifications in house was sent to me yesterday. I immediately phoned Gerhardus Burger (who is no longer at IRBA) and we had a little chuckle. The problem I had yesterday was that I didn't know who actually said that they would can verification agencies. Lo and behold BDLive reported the following this morning

THE government will take control of the black economic empowerment (BEE) verification process to drive the creation of 100 "black industrialists" over the next three years.

Verification agencies will be downgraded to become "empowerment advisers" so that the private sector does not issue verification certificates to itself, the Department of Trade and Industry said on Thursday.

The department is aiming to address frustrations over the perceived slow pace of black economic empowerment (BEE), especially business ownership, and to correct empowerment policies seen to benefit "the few" and spur "rent-seeking".

The department would stimulate the creation of "black billionaires and millionaires" across all sectors of the economy, Deputy Trade and Industry Minister Mzwandile Masina told the first Black Industrialists’ Stakeholder Engagement forum at the Industrial Development Corporation’s (IDC’s) offices in Sandton on Thursday.

The department’s director-general Lionel October told the forum that BEE verification had become a "fly-by-night" business. The department was establishing a Broad-based BEE Commission to speed up empowerment processes in line with "instructions received from the executive".

Mr Masina, former national convener of the African National Congress Youth League, said BEE verification agencies undermined the government’s development goals.

It would seem that both Lionel and Masina said it. That's one for the books. If you read the whole article then you'll see that this is just political posturing - my experience of Lionel is that he probably believes what he says, but this Masina-vent is talking not as a minister but as an ANC propagandist, and if you consider that he comes from the youth league then sense, logic and forethought are completely irrelevant. Viz

Mr Masina criticised the Treasury for being out of step with the process of empowerment. "National Treasury is not in the space of transformation but in the space of the public purse — this needs to change. We will continue to pursue National Treasury and the government to make sure transformation takes place," he said.

Black industrialists had to do business with the rest of Africa, and take part in the entire productive value chain, Mr Masina said. "We want set asides for black people — we see it in a lot of countries, why not South Africa?"

Here is the deputy minister criticising Treasury who control the PPPFA. We assume that Nene is not going to budge on the PPPFA just as Pravin didn't, the DTI would know this. So now they are purporting to be champions of elite black industrialists. I think he was talking to an audience that wanted to hear what he had to say. Good DTI bad Treasury

Let us assume that they actually go ahead and do this, forcing about 300 verification agencies to become "empowerment advisers" and not "fly by night" operators (with a substantial reduction in jobs). They would need to justify this in terms of section 22 of our Constitution (that the government rarely consults when it legislates).

Every citizen has the right to choose their trade, occupation or profession freely. The practice of a trade, occupation or profession may be regulated by law.

What Masina is actually doing is arbitrarily denying a few thousand people the right to work in a profession/occupation they have chosen. I am almost sure that you cannot terminate this with the stroke of a pen. I am even more convinced that if they do then there will be a legal challenge.

The second part of my scenario suggests that they succeed under section 22 and go ahead with the DeTrImental Verification Agency. This is what we know we can expect.

Sheer incompetence. I'd love to say that it's beyond anything you can imagine, but the DTI continuously plumbs depths of incompetence so we can definitely imagine it

February 05, 2014

Craig Terblanche forwarded an interview with Kenneth Brown, National Treasury's chief procurement officer who been given the responsibility of overseeing the design and implementation of "rigorous procurement reforms" that Pravin wishes to implement. These reforms intend to improve infrastructure project management, strengthen service delivery, eliminate waste and root out corruption. The priority being to improve efficiency and visibility across the value-chain so as to guarantee value for money and a reduction in waste. (most of this has been cut and pasted directly from the Engineering News article).

Part of this process is to take a look at the PPPFA

A technical committee has been established to assess all aspects of the Preferential Procurement Policy Framework Act (PPPFA) to deal with some of the objections that have emerged from certain interest groups. "By the end of June, we should have a sense on where we are headed with the PPPFA and whether amendments are needed."

The "certain interest groups" are in all probability the Black Business Cabal Council. I wrote about this last week. In the post I quoted something from BDLive where "BBC CEO Xolani Qubeka said. The act in its current form was "antitransformation". His criticism is based primarily on the 90:10 (price to socioeconomic ratio) gauge used for the adjudication of tenders."

The Engineering News article refers back to section 217 of the constitution

Part of the agenda involves a process of legislative reform, guided by Section 217 of the Constitution, which stipulates that public entities contract for goods or services in a way that is "fair, equitable, transparent, competitive and cost-effective", while leaving room for "preference" in the allocation of contracts, as well as "protection or advancement" for those "disadvantaged by unfair discrimination".

I cannot see how changing the PPPFA rules are going to provide the necessary reforms that are going to talk section 217. In fact the BBC have no time for section 217. What they are advocating is the removal of the PPPFA altogether to further their specific agenda – which is quite patently to get the state to hand over business on the basis of race and race alone. Besides the fact that this is neither fair, equitable, competitive or cost effective (it is very transparent) it opens up the door for rampant corruption and abuse. At least with the PPPFA you've got a few basic guidelines and processes that could prevent abuse. Imagine a scenario where a government department (SOE or the like) state that certain procurement can only come from black-owned businesses. You must understand that the BBC operates at the highest levels in government departments so they could influence what gets set-aside. This could be certain types of high-end items that the BBC's members have exclusivity over. They could collude and ensure that an inflated price is set for each bid (like the construction sector during the world cup). That government department will then pay that premium price that the BBC has engineered.

It is impossible for the BBC to get its way and for Treasury to ensure that it "guarantee value for money and a reduction in waste". I am slightly heartened by Ken's suggestion that by June they'll know what to do with the PPPFA and whether to amend it. I just hope that he is able to resist the extreme pressure that Zuma's buddies in the BBC are able to exert. I also think we could have a defensive constitutional challenge on any of these reforms. It'll probably be my responsibility to do this.

January 27, 2014

Mal Ossie Gigaba has graced the hypertexted (and password protected) BDLive again. This time he was addressing the BMF.

Mr Gigaba briefed the forum about business opportunities arising from the development of the Durban-Free State-Gauteng logistics and industrial corridor, which is the second strategic integrated project (SIP) of the national infrastructure plan. It is the most important economic corridor in the country. He said changes to legislation, including a review of the Preferential Procurement Policy Framework Act, were vital to hastening the expansion of a black industrial class in South Africa.

The act has drawn sharp criticism from black business groups and even state agencies which believe the government's overwhelming bias towards price in evaluating tenders restricts the potential to develop new industries and supply chains. Programmes of sufficient scale, they said, were worth paying a premium for, because of the benefits they could bring to long-term economic development.

"We are persisting in our effort, working with other government departments, to seek a review of the act in order to be able to achieve the goal of faster and more radical empowerment," Mr Gigaba said.

His comments were welcomed by the Black Business Council (BBC), which has said it is impossible for black-owned companies to compete with large firms when it comes to doing business with the state.

Funding was a key concern, BBC CEO Xolani Qubeka said. The act in its current form was "antitransformation". His criticism is based primarily on the 90:10 (price to socioeconomic ratio) gauge used for the adjudication of tenders.

Mr Qubeka believes the act should be replaced by "set-asides" of 40% of the work for black firms. A normal tender process would determine a winner, and would ensure that high standards are adhered to.

And the keywords are shot around the room. Radical empowerment, antitransformation and set-asides. Radical Empowerment and set-asides are unfortunately blocked by the PPPFA. Hence it's a useless act (according to the VERY EXCLUSIVE Black Business Cabal). Strangely though there is some merit to what he says, I think the idea of the state paying a premium to create sustainable black businesses that pay taxes and employ people is a good idea. It's a pity that it's limited to only black business but that's an argument for the next millennium. But even the least jaded person knows that these best intentions will amount to nothing. The very connected (many of whom are prominent members of the BBC) are just going to get even richer through entitlement and the poor will, well remain just that. .

I need to understand this whole process. It is an election year, one that hopefully results in the ANC taking a complete pounding at the polls. Rhetoric like this is aimed at those disgruntled African people who can see the ANC for what it is and have drifted away from its rudderless boat. It's a nice promise – we'll change the law to make sure that you as a black (read African) person will win many state tenders and become rich. You won't even have to compete on price or capability, it will just land in your lap. In the case of set asides, it'll only be black people bidding on these which will limit the competition even more. Money for jam, hey Sandile.

BUT – the PPPFA just keeps getting in the way. Not only the PPPFA, it's also the PPPFA's gatekeeper Treasury that keeps on preventing these poor and disgruntled Zungs from walking in and grabbing their entitlement, which is state business. The PPPFA has to go. The BEE codes have already promoted black businesses to a level that no other company will ever be able to compete with. Why can't the PPPFA do the same. As an aside you'll see that all of this activity is directed at state procurement and not private. I am almost sure that the private sector has little regard for the BBC because they add little value to anything. Wealth for the Zungs can only be created on the coattails of the state – and with those relationships in place the Zungs can then become the middle agent for the private sector. Everybody wins. But the PPPFA won't allow this!. You see if you outsource more than 25% of the contract to another party they have to have a better or equal BEE score than yours. Let's say you are a 100% black owned company turning over R49,999,999.99 you are automatically a level one contributor. Where on earth are you going to find a white-owned company that can vaguely compete with that? The answer is nowhere. The new codes have made it impossible to get to a level 7 let alone anything else. No – that PPPFA has to go!!!!

And the other BUT – in order to get rid of the PPPFA you need to change section 217 of the Constitution (howmany times have I written about this). You could do what Rob did with the new BEE codes, just gazette them even though they do not talk the BEE Act, the BEE strategy and by association, the Constitution. But there's a problem here – those irritating white businesses will notice what you're trying to do and go to the Constitutional Court and get your amended PPPFA thrown out (as I hope to do with the new BEE codes). So what we need to do is get to the source of the problem and remove it – the Constitution (which includes section 217). Perhaps we should start with section 217. Yes, but to get rid of or amend section 217 you must have a 2/3rds vote.

Everyone knows that the ANC does not enjoy that kind of majority. Even if they did get a 66% majority the party is so factional that they'd never get the support they need. Now you understand why Zuma is asking for a 90% majority. It's simple it allows for a 23% fallout on the vote and the ANC can still push it through. And they'll do this in the name of service delivery. Although I think that a lot of service delivery issues arose as a result of dodgy tenders anyway. But you must remember that the ANC owned the Independent news group (via OddBall Survey – more on this to come), the New Agenda (which is just useless), ANN7 (which is no longer as entertaining as it used to be) and the SABC. The latter is the most dangerous, like the Nats the ANC will only broadcast pro-ANC news. Pro-ANC news is a refutation of all anti-ANC allegations.

And this is what scares me. Are we aware of what is going on in parliament? Zuma has five years left – which means that the Zungs really need to up the ante when it comes to milking the state. And they will do just that . They'll either push it through like they did the Secrecy Bill or they'll do what Rob the Red did with the BEE codes. There is stuff going on around us and we need to keep a watchful eye out. If we don't they will bleed this country dry.